INFOLINK COLLEGE

DEPARTMENT OF
ACCOUNTING AND FINANCE
COURSE
STRATEGIC MANAGEMENT

march, 2020
1
 Chapter 1
The Nature of Strategic Management

Strategic Management:
Concepts & Cases
11th Edition
Fred David

Ch 1 -3
 CHAPTER OBJECTIVES
After studying this chapter, you should be able to do
the following:

4. Discuss the nature of Strategy

1.Describe the strategic-
formulation, implementation, and
management process.
evaluation activities.
2. Explain the need for
5. Describe the benefits of good
integrating analysis and
strategic management.
intuition in strategic
management.
3. Define and give
examples of key terms
in strategic
management.

Ch 1 -4
Strategic Management – Defined
 History of Strategy began in the military.
 Word ‘Strategy’ comes from Greek word

‘Strategos’, that refers to military general

and combines ‘stratos’ (army) and ‘ago’
(to lead).
 1st used around 360 BC, when the
Chinese military strategist sun Tzu wrote
the art of war,
Ch 1 -5
Strategic Management – Defined
 Both Military Strategy and Business Strategy
focus how to use their own strengths to exploit
enemy’s / competitor’s weaknesses.
 Fundamental difference between Military
Strategy and Business Strategy is that Military
strategy is based on the assumption of ‘Conflict’,
whereas Business Strategy is based on the
assumption of ‘Competition’.
 Strategic Management as an academic discipline
started to develop in the 1950s.

Ch 1 -6
Strategic Management –
Defined

Art & science of formulating,

implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives

Ch 1 -7
Strategic Management
achieves a firm’s success
through integration ––

Management Marketing

Finance/Accounting Production/Operations

Research & Development MIS

Ch 1 -8
Strategic Management

strategic plan is a company’s game plan

Ch 1 -9
Stages of Strategic Management

ch 1 - 10
Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Ch 1 -11
Issues in Strategy
New
Newbusiness
business opportunities
opportunities
Formulation Businesses
Businessesto
toabandon
abandon
Allocation
Allocationof
ofresources
resources
Expansion
Expansionor ordiversification
diversification
International
Internationalmarkets
markets
Mergers
Mergersororjoint
jointventures
ventures
Avoidance
Avoidanceof ofhostile
hostiletakeover
takeover

Ch 1 -12
Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

Ch 1 -13
Strategy
Implementation Action
ActionStage
StageofofStrategic
StrategicManagement
Most difficult stage
Management––
Most difficult stage
Mobilization
Mobilizationofofemployees
employees&&managers
managers
Interpersonal
Interpersonalskills
skillscritical
critical
Consensus
Consensuson ongoal
goalpursuit
pursuit
discipline,
discipline,commitment
commitmentand andsacrifice
sacrifice

Ch 1 -14
Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions

Ch 1 -15
Strategy Final
FinalStage
Stageof
ofStrategic
StrategicManagement
Management
Evaluation
Subject
Subjecttotofuture
futuremodification
modification
Today’s
Today’ssuccess
successno noguarantee
guaranteeof
offuture
future
success
success
New
New&&different
differentproblems
problems
Complacency
Complacencyleadsleadsto
todemise
demise

Ch 1 -16
 The
The Stages
Stages and
and Activities
Activities in
in the
the
Strategic
Strategic Management
Management Process
Process
Stages Activities
Strategy Conduct Integrate Make
formulation investigation intuition with
analysis decisions

Strategy Establish Devise Allocate

implementation annual policies resources
objectives

Review internal Measure Take

Strategy and external performance corrective
evaluation factors action
Ch 1-17
Integrating Intuition and
Analysis

The strategic management process

attempts to organize quantitative and
qualitative information under conditions of
uncertainty

Ch 1 -18
Integrating Intuition and
Analysis

Intuition is based on:

 Past experiences

 Judgment

 Feelings

Intuition is useful for decision making in:

 Conditions of great uncertainty

 Conditions with little precedent

 Several plausible alternatives

Ch 1 -19
Albert Einstein acknowledged the importance of intuition when he said,

“Ibelieve in intuition and inspiration. At times I feel certain that I am

right while not knowing the reason. Imagination is more important than
knowledge, because knowledge is limited, whereas imagination
embraces the entire world

Drucker says,

“I believe in intuition only if you discipline it. ‘Hunch’ artists, who make
a diagnosis but don’t check it out with the facts, are the ones in
medicine who kill people, and in management kill businesses.

Ch 1 -20
Copyright 2007 Prentice Hall
Integrating Intuition &
Analysis

Intuition & Judgment

Involve Management at all levels

Influence all Analyses

Ch 1 -21
 Intuition + Analysis

Effective Strategic Decisions

Ch 1 - 22
Adapting to Change

 Firms, like organisms, must be “adept at adapting” or

they will not survive.
Organizations must monitor events
 On-going process
 Internal and external events

 Timely changes

Ch 1 -23
Adapting to Change
“In today’s business environment, more than in any preceding era, the only constant
is change.” Waterman

Rate & magnitude of change

increasing dramatically
E-commerce

Globalization

Technology

Ch 1 -24
Adapting to Change

Effective Adaptation

Requires long-term focus

Ch 1 -25
Adapting to Change – Key
Strategic Management
Questions
 What kind of business should
we become?
 Are we in the right fields
 Are there new competitors?
 What strategies should we
pursue?
 How are our customers
changing?

Ch 1 -26
Key Terms

Strategists – Firm’s success/failure

Various Job Titles:

•Chief Executive Officer (CEO)

•Chief Strategy Officer (CSO)
•President
•Owner
•Board Chair
•Executive Director

Ch 1 -27
Competitive Advantage

“Anything that a firm does especially

well compared to rival firms”
Strategic Management is Gaining
and Maintaining Competitive
Advantage

Ch 1 -28
Achieving Sustained
Competitive Advantage

1. Adapting to change in external trends,

internal capabilities and resources

2. Effectively formulating, implementing &

evaluating strategies

Ch 1 -29
Key Terms

Vision Statement –
What do we want to become?

Mission Statement –
What is our business?

Ch 1 -30
Key Terms

Opportunities and Threats (External)

 Largely beyond the control of a single

organization

Ch 1 -31
Key Terms

Opportunities & Threats (External)

Analysis of Trends:
• Economic
• Social
• Cultural
• Demographic/Environmental
• Political, Legal, Governmental
• Technological
• Competitors

Ch 1 -32
Key Terms
Opportunities & Threats

Environmental Scanning (Industry Analysis)

 Process of conducting research and

gathering and assimilating external
information

Ch 1 -33
Key Terms
Opportunities & Threats

Basic Tenet of Strategic Management

Take
Takeadvantage
advantageof
of
External
ExternalOpportunities
Opportunities
Strategy Formulation

Avoid/minimize
Avoid/minimizeimpact
impactof
of
External
ExternalThreats
Threats

Ch 1 -34
Key Terms

Strengths & Weaknesses (Internal)

 Controllable activities performed especially

well or poorly

Ch 1 -35
Key Terms

Strengths & Weaknesses (Internal)

Typically located in functional areas of the firm

• Management
• Marketing
• Finance/Accounting
• Production/Operations
• Research & Development
• Computer Information Systems

Ch 1 -36
Key Terms
Strengths & Weaknesses
Assessing the Internal Environment

Financial Ratios

Performance Metrics
Internal Factors
Industry Averages

Survey Data

Ch 1 -37
Key Terms

Long-term Objectives

 Objectives can be defined as specific results

that an organization seeks to achieve in
pursuing its basic mission. Long-term
means more than one year.

Ch 1 -38
Key Terms

Long-term Objectives

Essential for ensuring the firm’s success

• Provide direction
• Aid in evaluation
• Create synergy
• Focus coordination
• Basis for planning, motivating, and
controlling

Ch 1 -39
Key Terms

Strategies

 Means by which long-term objectives are

achieved

Ch 1 -40
Key Terms

Strategies
Some Examples
• Geographic expansion
• Diversification
• Acquisition
• Market penetration
• Retrenchment
• Liquidation
• Joint venture

Ch 1 -41
Key Terms

Annual Objectives

 Short-term milestones that firms must

achieve to attain long-term objectives

Ch 1 -42
Key Terms

Policies

 Means by which annual objectives will be

achieved

Ch 1 -43
Over view of types/levels of strategy

Ch 1 -44
1) Corporate level strategies
 A corporate level strategy specifies actions a firm takes to
gain a competitive advantage by selecting and managing
a group of different businesses competing in
different product markets.
2) Business Level Strategies
 A business-level strategy is an integrated and
coordinated set of commitments and actions the firm uses
to gain a competitive advantage by exploiting core
competencies in specific product markets
3) Functional Level Strategies
 This is the approach taken by a functional area to achieve
corporate and business unit objectives and strategies
 They are strategies, which are designed by different
functions of a company; Finance, Accounting, Research
and Development, Personnel, Marketing and Production
Corporate level strategy

Business level
strategy

Functional level strategy

Ch 1-46
Comprehensive strategic
management model

Ch 1 -47
Strategic Management Model

Strategic Management Process

 Dynamic & Continuous

 More formal in larger organizations

Ch 1 -49
Strategic Management Model

1. Identify Existing --

• Vision
• Mission
• Objectives
• Strategies

Ch 1 -50
Strategic Management Model

2. Audit external environment

3. Audit internal environment
4. Establish long-term objectives
5. Generate, evaluate & select
strategies
6. Implement selected strategies
7. Measure & evaluate performance

Ch 1 -51
Benefits of Strategic
Management

• Proactive in shaping firm’s future

• Initiate and influence firm’s activities

• Formulate better strategies
•Systematic, logical, rational
- The process provides to empower individuals

Ch 1 -52
Benefits of Strategic
Management

Financial Benefits

• Improvement in sales
• Improvement in profitability
• Productivity improvement

Ch 1 -53
Benefits of Strategic
Management

Non-Financial Benefits

• Improved understanding of competitors strategies

• Enhanced awareness of threats
• Reduced resistance to change
• Enhanced problem-prevention capabilities

Ch 1 -54
Benefits of Strategic
Management (Greenley)

1. Identification of Opportunities
2. Objective view of management problems
3. Improved coordination & control
4. Minimizes adverse conditions & changes
5. Decisions that better support objectives

Ch 1 -55
Benefits of Strategic
Management (Greenley – cont’d)

6. Effective allocation of time & resources

7. Internal communication among personnel
8. Integration of individual behaviors
9. Clarify individual responsibilities
10. Encourage forward thinking

Ch 1 -56
Benefits of Strategic
Management (Greenley – cont’d)

11. Encourages favorable attitude toward

change
12. Provides
discipline and formality to the
management of the business

Ch 1 -57
Why Some Firms Do No
Strategic Planning

Poor reward structures

Waste of time
Too expensive
Laziness
Content with success

Ch 1 -58
Why Some Firms Do No
Strategic Planning

 Lack of knowledge and experience

Fear of failure
Overconfidence
Prior bad experience
Self-interest
Fear of the unknown
Suspicion
Ch 1 -59